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E X P E R T A N D S T R AT E G I C H R A D V I S O R 1
WORK SERVICE GROUPH1’16 Results | Management Presentation
E X P E R T A N D S T R AT E G I C H R A D V I S O R 2
EXECUTIVE SUMMARY
E X P E R T A N D S T R AT E G I C H R A D V I S O R 3
1
2
3
Management Board CommitmentsMay 2016 and beyond
TOPLINE growth commitment ↑
FY EBIT commitment →
EBIT restructuring commitment ↗
+25%
2016 ≈ 2015
Mainly Germany and Poland
E X P E R T A N D S T R AT E G I C H R A D V I S O R 4
Key Topline Growth Contributors
977
1203
89,8
56,9
37,8
34,2 27,013,7
-10,0
800
850
900
950
1 000
1 050
1 100
1 150
1 200
1 250
1 300
ConsolidatedH1'15
Acquisitions WS Poland WS Hungary Exact Systems IT Kontrakt All Others ConsolidatedH1'16
40%
42%
27%
Revenue [m PLN] COMMENTS
Acquisitions (Q4’15) contributed 40% of the growth in YoY revenues.
Core flexible employment markets of Work Service Poland and Work ServiceHungary contributed additional 42% of the growth in YoY revenues.
High margin, specialized companies i.e. Exact Systems and IT Kontrakt added27% of the growth in YoY revenues.
All others represent:• In plus: WS Czech and Slovakia, Antal and Work Service Express (+13,7m PLN),• In minus: WS Germany and WS Russia (-10,0m PLN)
The difference between bridge analysis and consolidated sales is the result of intercopany charges not reflected in disegregated business units.
Source: The Company
Revenues
[m PLN]WS PL WS HU WS DE WS RU WS CZ WS SK
Exact
Systems
IT
KontraktAntal
Work
Express
H1'15 313,4 160,4 152,4 36,2 26,7 17,5 80,2 64,1 16,0 117,7
H1'16 370,3 198,1 150,2 28,0 27,0 22,6 114,4 91,1 17,9 123,9
DYNAMIC 118% 124% 99% 77% 101% 130% 143% 142% 112% 105%
E X P E R T A N D S T R AT E G I C H R A D V I S O R 5
Restructuring GermanyActions taken and first results
TOPLINE INITIATIVES:New management, commercially oriented setup, including experienced external advisors and a professional sales executive.Increased sales firepower, as sales staff has been changed/hired.Operations Managers get proactive sales responsibility to better utilize labor resources. Introduced Sales Performance Management.Taking over 65% of competitor’s business in 5 Fiege locations with an impact of 0,7m EUR EBIT still in FY16.New minimum wage level increase introduced by Federal Government as of June 1st: (+2.3% West / +3.0% East).
MARGIN IMPROVEMENT:External staff efficiency is clear focus area for the whole organization.New conditions introduced for advance notice of employment changes (<20FTE – 5 days, 20-40FTE 10 days, >40FTE 20 days).Rules for bookings and cancelations introduced, with an impact on efficiency.Introduced price increase on Fiege and non-Fiege customers (i.e. BASF). Margin improved by 1.3pp compared to H1’15.
BOTTOM LINE INITIATIVES:Development costs of Enloyd DE to be minimized as of H2’16 (c.a. 1m PLN loss in H1’16).Stabilized situation in critical location: Fiege Dieburg. Branch office back in black in H2’16.Decision to close other loss making branches of Fiege – Fiege Buerstadt and Fiege ICD (impact already visible on FTE levels, however not reflected inH1’16 results as restructuring costs to be covered).
E X P E R T A N D S T R AT E G I C H R A D V I S O R 6
Restructuring PolandActions taken and first results
TOPLINE EFFICIENCY FACTORS:1. Non-invoiced services are being corrected and invoiced properly according to binding contractual agreements.2. Low profitability contracts are in the process of renegotiation/withdrawal.3. Major project of annual price indexation and new trade terms for 2017 has been launched (Jul’16).4. Increasing share of high margin contracts based on Ukraine sourcing, new sales margin higher than average.
CANDIDATE CARE EFFICIENCY FACTORS:1. Centralized call center to handle candidates/employees is to be launched as of Sep’16.2. B2C Mobile Application under development, to be deployed as of Oct’16.3. Re-launch of WWW with clear focus on candidate care, Oct’16.4. New standard of Candidate Management in front offices (new procedures).
INTERNAL PROCESSES EFFICIENCY FACTORS:1. Merger of sales and operations structures.2. Lean optimization and automatization: i.e. digital/remote employment contracts signature, digitalization of archive, new employee handling
procedure.3. Internal Headcount reduction by 78FTE til end of June, planned additional 20FTEs to be dismissed by the end of the year (~15% of internal staff).
E X P E R T A N D S T R AT E G I C H R A D V I S O R 7
FINANCIALS
E X P E R T A N D S T R AT E G I C H R A D V I S O R 8
P&L StatementH1’16 vs. H1’15
Source: The Company
Comments
Revenues grew by 23%, and gross profit from sales increased by almost 31%.
Gross profit margin increased by 0.6 pp compared to H1’15 driven by positive marketenvironment and changes in product/customer mix.
Increase in costs is driven mainly by:• impact of consolidated costs of acquired entities (mainly CRS & Balkans) = 10,1m
PLN,• additional costs of integration and restructuring projects in Germany and Poland
6,2m PLN.
After 6 months – excluding impact of acquisitions and additional transformation costs– Revenue growth is 3.2pp higher than Indirect Costs growth.
EBIT value affected by a writedown (non-cash) of receivables in Germany. AdjustedEBIT (excluding write-off) increased by 7% compared to H1’15.
Net Profit decreased by 64% due to higher level of financial expenses (due to higherutilisation of loans) and income tax expense.
Specification [t PLN] H1'15 H1'16Dynamic
2016/2015
Net revenues from sales of products and
services 977 115 1 203 169 23,1%
Cost of products, goods and materials sold 878 344 1 074 127 22,3%
Gross profit (loss) on sales 98 771 129 041 30,6%
Selling costs 22 705 23 252 2,4%
General and administration costs 47 513 73 796 55,3%
Profit (loss) on sales 28 552 31 993 12,1%
Other operating revenues 12 260 10 803 -11,9%
Other operating expenses 7 922 10 624 34,1%
Profit (loss) on operating activities 32 890 32 173 -2,2%
Financial revenues 1 889 1 583 -16,2%
Financial expenses 14 313 16 154 12,9%
Gross profit (loss) 20 466 17 602 -14,0%
Income tax 7 256 9 590 32,2%
Net profit (loss) 13 210 8 012 -39,3%
Specification [t PLN] H1'15 H1'162016/2015
% change
Revenues (organic) 977 115 1 113 325 13,9%
Indirect Costs (organic) excl. Transformation Costs 130 344 144 293 10,7%
E X P E R T A N D S T R AT E G I C H R A D V I S O R 9
Comments
Revenue [m PLN]
• Cumulative 23% sales growth, is the result of a very strong dynamic in both the organic growth of the core, as well as in the consolidated entities acquired in the2013-2015 period.• Organic growth remains a solid engine of growth with 14% better like-for-like topline. Growth once again exceeds the expected market value growth in CY2016.• Core business Work Service Poland grew organically by 19% year-on-year.• Revenues growth (YoY) champions are Exact Systems (+43%), IT Kontrakt (+42%) and Work Service Hungary (+24%).
Capital Group ResultsRevenue and EBITDA
8,6 10,218,0 19,0 20,4
9,6 9,6
18,3 19,5 19,69,4
12,5
23,628,3
15,719,9
38,837,4
0
10
20
30
40
50
60
70
80
90
100
2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6
Q4
Q3
Q2
Q1
170,6 188,7 345,9 474,5 591,9182,8 221,4
390,0
502,6611,3
186,1238,8
488,3
548,8
187,9269,5
515,6
610,8
0
500
1000
1500
2000
2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6
Q4
Q3
Q2
Q1
EBITDA [m PLN]
Source: The Company
E X P E R T A N D S T R AT E G I C H R A D V I S O R 10
Scale of Our Operations
1Q'12 2Q'12 3Q'12 4Q'12 1Q'13 2Q'13 3Q'13 4Q'13 1Q'14 2Q'14 3Q'14 4Q'14 1Q'15 2Q'15 3Q'15 4Q'15 1Q'16 2Q'16
WESTERN EUROPE (UK, BG) 19 38 134 118 147 156
BALKANS (TR, CRO, SLO, RO) 74 86 134 222 186 191 261 1 171 1 274 1 378
CENTRAL EUROPE (CZ, SK, HU) 557 585 638 639 627 1 393 1 650 1 710 7 127 7 576 8 563 7 184 9 268 9 615 10 222 8 258 10 323 10 090
RUSSIA 1 910 1 946 1 646 1 665 1 822 1 220 1 365 1 392 1 790 1 505 1 560 1 377 1 297 1 209 1 326 1 245 778 594
GERMANY 77 154 231 236 217 378 402 464 437 478 2 828 2 231 2 396 2 207 2 457 1 991 1 930 1 884
POLAND 11 872 11 785 12 062 11 234 12 983 15 320 16 844 17 526 19 641 19 383 21 530 18 574 22 598 22 332 26 291 24 216 25 597 26 871
10 000
15 000
20 000
25 000
30 000
35 000
40 000
Comments
Total Group employment level again exceeded40.000 FTE, mainly driven by the strong growth oncore domestic market.
Poland represents 2/3 of Group FTEs, growing by5% QoQ and 20% YoY.
Central Europe (CZ,SK,HU) stays strong and stable,contributing 25% of Group FTEs.
Average Group employment level in H1’16 is 9%higher than in whole FY2015 and 14% higher v.H1’15.
Drops of employment levels in Germany andRussia are the effect of organizationalrestructuring of Work Service Business Units inGermany and Russia.
E X P E R T A N D S T R AT E G I C H R A D V I S O R 11
0
200
400
600
800
1 000
1 200
H1'15 H1'16
POLAND GERMANY
RUSSIA CENTRAL EUROPE
BALKANS WESTERN EUROPE
0
30
60
90
120
150
180
H1'15 H1'16
POLAND GERMANY
RUSSIA CENTRAL EUROPE
BALKANS WESTERN EUROPE
Comments
Revenue [m PLN]
• Group Gross Profit grew by 19% YoYfollowing Revenues which grew by 23%.
• Key Gross Profit growth contributors arePoland and Central Europe Region (Czech,Slovakia and Hungary).
• Germany due to the restructuring projectregistered a 6% drop in revenues vs. previousyear but its Gross Profit remained stable. Thisresulted in a Gross Profit improvement inWork Service Germany of 1.3pp (18,8 %->20,2%).
• Gross Profit Margin is diluted by theenormous growth of mass margin businesses(Work Service Poland and Hungary), whichgrew even faster than high margin BusinessUnits growth.
Country/Region SplitRevenue and Gross Profit
+23% +19%
Gross Profit [m PLN]
Source: The Company
E X P E R T A N D S T R AT E G I C H R A D V I S O R 12
Financial RatiosH1’16 vs. H1’15
Comments
• Lower level of profitability ratios due to consolidated costsof recent acquisitions, set up of new structures, as well aslower profitability ratios in Germany. Increase of G&Acosts.
• EBIT & EBITDA margin affected by one-off receivablewritten of in Germany
• Higher debt utilization drives financial costs increase.
• Receivables turnover ratio remained stable while revenueincrease by 23%.
• Increase of net debt/EBITDA ratio is mainly a result ofcontinued M&A activity and significant organic growth ofthe Group which requires additional sources of financing
Source: The Company
Financial ratios H1'15 H1'16Change
2016-2015
Profitability ratios
Gross Margin 2.92% 2.66% -0.26%
EBIT Margin 3.37% 2.67% -0.70%
EBITDA Margin 3.94% 3.33% -0.61%
NP Margin 1.35% 0.67% -0.68%
ROA 1.43% 0.71% -0.72%
ROE 3.88% 2.33% -1.55%
Liquidity ratios
Cash conversion cycle 43 46 3
Turnover ratios
Turnover of receivables ratio 45 47 2
Turnover of liabilities ratio 6 6 0
Debt ratios
Net Debt / EBITDA 2.12 2.77 0.65
E X P E R T A N D S T R AT E G I C H R A D V I S O R 13
As at [t PLN] Dec 31st 2015 Jun 30th 2016
EQUITY 329 158 344 052
Share capital 6 509 6 509
Supplementary capital 312 423 341 944
Capital from the valuation of options -35 131 -35 131
Net profit (loss) 27 616 3 053
Exchange rates balance -25 786 -15 567
Minority Interest 43 526 43 244
LIABILITIES AND PROVISIONS FOR LIABILITIES 791 352 780 039
Long-term liabilities 291 504 257 713
Long-term credits and loans 147 725 136 556
Deferred income tax liabilities 3 296 2 372
Other provisions 1 475 2 514
Other liabilities 139 007 116 271
Short-term liabilities 499 849 522 326
Trade and other liabilities 387 300 419 916
Short-term credits and loans 84 031 72 535
Other provisions 28 518 29 875
TOTAL LIABILITIES 1 120 510 1 124 091
Balance SheetH1’16 vs. H2’15
Source: The Company
As at [t PLN] Dec 31st 2015 Jun 30th 2016
FIXED ASSETS 588 600 587 564
Intangible assets 64 596 60 753
Goodwill 466 899 471 139
Tangible fixed assets 32 989 33 635
Real property investments 1 607 1 642
Other financial assets 25 25
Other long-term assets 4 605 4 349
Other long-term financial assets 3 330 2 803
Deferred tax assets 11 794 12 056
Prepayments 2 756 1 161
CURRENT ASSETS 531 910 536 527
Inventory 17 243 20 539
Trade and other receivables 407 959 392 045
Other financial assets 16 046 29 254
Other short-term assets 8 932 11 653
Cash and other pecuniary assets 57 904 51 253
Prepayments 23 826 31 784
TOTAL ASSETS 1 120 510 1 124 091
Total assets remained stable in comparison to y.e. 2015. Fixed assets at the similar level as a result of :• No significant acquisitions in H1’16 (no incremental goodwill recognized),• Amortization of intangible assets with no major new investments in H1 2016.Trade and other receivables decreased even though total revenue increased by 23% .
Equity remained similar to y.e. 2015 and increased mainly as a result of net profit for theperiod. 2015 result increased the value of supplementary capital.Decrease of long term liabilities is mainly a result of the transfer of 20m PLN bondliability which has now became a short term liability.No other significant fluctuations in equity or liabilities.
E X P E R T A N D S T R AT E G I C H R A D V I S O R 14
Cash Flow StatementH1’16 vs. H1’15
Comments
• Positive inflows from operating activites aremainly the result of continuous process ofincreasing Sales Margin and improvement in cashmanagement .
• Lower level of outflows on investing activities arethe result of no significant amounts of M&Aoutflows v H1’15 (which mainly Prohuman andWork Express)
• Outflows in H1’16 from financing activities aremainly the result of a decrease in the utilization ofcredit at the end of 1H as well as higher interestexpense payments due to higher utilisation ofcredit intra-period.
Source: The Company
As at Jun 30th [t PLN] 2015 2016
Net profit (loss) 10 000 3 053
Total adjustments 18 277 35 138
Cash flows from operating activities 28 277 38 191
Inflows 10 741 753
Outflows 146 131 17 927
Cash flows from investing activities -135 390 -17 174
Inflows 102 416 7 200
Outflows 11 424 34 868
Cash flows from financing activities 90 992 -27 668
Increase (decrese) of cash and its net equivalents -16 121 -6 651
Cash balance at the begining of the period 72 488 57 904
Cash balance at the end of the period 56 367 51 253